Well, here it is again, that time of year when we all seem to panic for some reason. The time when we all start running around the office screaming, ‘QUICK, HURRY, IT’S ALMOST END OF MONTH, DON’T YOU KNOW WHAT MONTH THIS IS? … IT’S THE END OF FINANCIAL YEAR!!!!!!!!!!!!!…..ARRRRRGHHHHHH!!!!.’
But why do we do that?
Well, the simplicity of it is that we are typically unprepared. We know it’s coming. In fact, it comes at the same time each year.
It’s a really bad business habit to leave all of our financial planning until the last minute. We spend all year running around making money, but almost NO time managing the money we’ve made. And then we wonder why we don’t have as much money as we thought we had as some of it just seemed to, well, disappear. ‘Where did it go, I’m sure it was there yesterday, I know I made the money, so why is it not in the bank today?’
A lot of these questions can be answered with cash flow management. And some of them purely by basic, simple, forward planning. All you need to do is invest the time to work out first WHAT you need to achieve in the New Year, and then HOW you are going to pay for it.
Don’t be fooled, any form of growth in business costs money – in product, people, planning, promotion, or business preparation by way of equipment or business tools. And the easiest way to accommodate that cost is to plan for it.
It took my first five businesses before I gave myself a smack in the head and stoped trying to convince myself that growth would not need investment, and that I could ‘bootstrap it’ out of cash flow and sales. It also took me five businesses to get real and honest with myself that I could not grow in half the time / for half the money / with half the staff. It was only when I DID get real and honest with myself and stopped to invest the time in some financial planning that we actually started to make some money in the business investments that we had.
Here’s what I did to avoid constant financial panic in our businesses.
Plan to plan
I set about scheduling financial planning meetings. Moments in time each day / week / month / quarter / year that I would consciously stop and focus on where the money was coming from and where it was going.
With each planning session I would focus on how I could FIRST plan better for WHAT was coming, and THEN work out HOW I was going to cover that.
Each day we had a ‘daily huddle’ with my key team. My accounts person would report on the money that came in yesterday, on what she was chasing today, and what had to be paid tomorrow.
We met for a weekly administration meeting each Monday. These would happen if I was in the office or not. And the focus was on cash flow management, and forecasting the next 30 days of potential income and expenses. The sales team would report expected income. The production team, reported on expected expenses. And the accounts team would match the two.
Quarterly, we’d update our tax plan. Of course we have the usual tax forms and reports to lodge, but we’d also keep an eye on our plan to end of financial year to make sure we were on track with what was ahead of us. This was also our time to forecast and identify first WHAT we needed to purchase by way of big ticket items in the next quarter and then HOW we were going to cash flow that to pay for it.
Twice yearly we’d meet for a two-day company strategy meeting. Our financial planning at these meetings was focused on our ‘reality check’ for the next half year. This is when we’d all put our hands on our hearts and be honest about our targets and if we were going to make them. This was our most important financial metric for the year.
Too many business people rule by fear when if comes to forecasting sales in their businesses. They stand in front of their sales teams and TELL them what they need to sell for the year without asking the team if they feel they can ACTUALLY TRULY sell that much.
The net result is that the owner gets frustrated when targets are not met, and the sales team get deflated when they continually get a bollocking from the owner or manager. That’s very counterproductive.
We found the key here was to say to the team, ‘tell me HONESTLY, WHAT do you think you can sell in the next half year?’ And then ask everyone the question, ‘HOW are we going to adjust the financial plan to suit that sales result?’
By putting these simple financial metrics in place we sailed into June 30 each year without panic as we knew exactly WHAT was ahead of us and HOW we were going to deal with it.
About Troy Hazard: I am the founder/owner of 12 businesses over the last 25 years, current CEO of Troy Hazard International, author of the book Future-Proofing Your Business, and the former Global President of the Entrepreneurs’ Organization. I have been a franchisee twice and a franchisor while consulting with over 300 brands in 6 countries. You can find me on Twitter @TroyHazard. You can book me to speak at your event by contacting us or calling 214-536-6666.